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Mr. Edwards presented the following report:
REPORT OF COMMITTEE ON A UNIFORM
SYSTEM OF ACCOUNTING
To the National Electric Light Association:
Gentlemen-Your committee has decided to limit the scope of this, its first report on a uniform system of accounting for electric lighting companies, as it realizes that it would be impossible to exhaust the subject of accounting at one convention. The committee believes that it is better to cover a few branches thoroughly, and leave to future conventions the task of considering other phases of the subject, so that in the end the association, helped by several reports and the incidental discussion thereon, will have accumulated a mass of information and experience which may then be codified and, if desirable, published.
This report is devoted to the discussion of the following subjects:
*General Accounts, with form of Balance Sheet
In all the forms submitted, there is included the "comparison" feature. Figures mean nothing by themselves; it is only when they are brought into comparison with other figures that their significance is realized.
The committee recommends close analysis of all disbursements, and has carried out that idea in its operating summary. It may be objected that some companies with a limited field do not require such elaboration, and that, as the staff is small, better results can be obtained by close personal observation of the facts of the business. The committee concedes that there is some merit in this objection, but it must be borne in mind that the field is constantly enlarging and that the small company of to-day will be larger to-morrow. There are few things more helpful to the manager than records containing a complete history of past transactions, closely analyzed and exhibiting all the infinite details of the business. To keep such records from
*The forms above referred to will be found at the end of the report.
day to day adds but slightly to the expense, and is abundantly compensated for by the accruing advantages. As the company grows, these records become more and more valuable, as only by this means can a standard of comparison be obtained. Finally, it should be recognized that interest in the affairs of the smaller companies exists outside of those directly connected with their operation, and that in order that general statistics of the industry may be available, it is necessary that they have a common basis of fact and arrangement.
If accounting is to be on a uniform basis throughout the association, it is necessary that uniformity should exist at the beginning, whereas the committee has, perhaps illogically, begun at the end. As stated at the outset, it was found to be impossible to cover the entire field in one report, and the committee feels, therefore, that it is not out of the way for it to mention some of the things which it has had to pass by, as this may be a guide to future convention work on this subject. If a uniform system of accounting is ever achieved, it will be because all the preliminary records, forms, and so forth, leading up to the general books of account are also uniform, which would also mean that similar operations would be similarly performed everywhere and would have a like significance wherever they occurred.
The following are the subjects which the committee recommends for future consideration:
Customers' Accounts-covering record work from the time the contract is obtained to the time when the current is connected; including card records in the contract department, connection and disconnection orders, meter index forms, installation data, billing data, with statements at the end of the month of current sold, bills rendered, and statistical information generally.
Disbursement Accounts—including the organization of the purchasing department, department requisitions and their significance, analysis of disbursement records, and forms and methods of securing data of costs.
Job, or Working Order System with method of securing in advance executive approval of all construction or repair work, with significance of original estimates and their relations to actual cost of work done.
Pav-Roll System-with forms of employees' records, method of collecting time, calculating the amounts of pay-rolls, and distributing the same over the proper disbursement accounts.
Supply Accounts-with forms of requisition for materials, methods of ascertaining value of each requisition and its proper distribution over the disbursement accounts; also including storerooms.
Statistics—with methods for calculating station load sheets, and ascertaining amount of current generated, showing the relation between current sold and current generated, and method for analyzing losses.
Record of Underground and Overhead Systems--showing methods of keeping records of conductors, with mileage, size, and character of cables and wires; also description of method for preparing maps of the system.
It will be seen that if all these various operations were treated in a uniform manner throughout the association, uniformity would be a fact, instead of something which it is hoped to obtain.
The committee believes that the best results can be obtained by concentrating all accounting work in the accounting department. It is a fact that in many companies records dealing with special subjects are kept in different departments, and that in order to get a complete report of the operations of a company, it is necessary to bring in many different agencies. Much better results can be obtained by concentrating record work, as the accounting department is then brought in close touch with all the operating departments, which widens its field of usefulness. It provides one place for the management to get information of all the operations, thus simplifying its problems very materially.
The general accounts are those that appear in the general ledger. They are, in the best practice, condensed summaries of the items that are treated at length in subsidiary books of record, and can give, therefore, only a bird's-eye view of the transactions of the company. At the same time, a balance sheet taken from the ledger should be a faithful exhibit of the condition of the company at that moment. This somewhat elementary statement is induced by the fact that the committee learns that it is the practice of some of the companies to enter in the general ledger only those items which appear in the cash book; that is, income
account is credited with cash received and the various disbursement accounts are charged only with cash actually paid. A balance from such a ledger would give a very inadequate idea of the condition of the business, as it would omit from the assets the amount owing for services rendered and from the liabilities the amount of debts incurred but not paid.
It is a fundamental principle of sound accounting that transactions shall be recorded as they occur and that the entire system shall be, from the first book to the last or general ledger, a continuous history of the transaction. Hence, when a bill for electric current consumed is rendered to a customer the income account should be credited and accounts receivable debited, and when a debt is incurred, accounts payable should be credited and the proper disbursement account debited. The asset and the liability thus created would disappear when cash was received or paid.
To carry out the scheme of accounting recommended herein, the following records subsidiary to the general ledger are necessary :
Consumers' Ledger-contains an account with each customer and a detail of the bill rendered.
Abstract of Expenditure-showing the amount of each debt incurred and in adjoining columns the account to be charged.
Operating Ledger-containing an account with each subclassification of the operating expenses.
Investment Ledger-containing an account with each construction account.
Accounts Payable Ledger-containing an account with each dealer.
A balance taken from the consumers' ledger should equal the balance appearing on accounts receivable in the general ledger; a balance taken from the operating ledger should agree with the amount of the operating expense account in the general ledger; a balance taken from the investment ledger should agree with the amount of the plant and property account in the general ledger, and a balance of the accounts payable ledger should agree with the amount of accounts payable in the general ledger.
Some of the above records may be consolidated where the volume of the transactions does not warrant so diversified a system. In such instances, the operating and investment ledgers may be combined, and it would also be proper to dispense with the accounts payable ledger and open an account with each dealer in the general ledger.
The subjoined balance sheet illustrates the accounts as they will appear in the general ledger if the committee's recommendations are adopted. The balance sheet shows only standard accounts. Naturally, every company will have in addition individual accounts arising from its special conditions, and these may be added as occasion requires.
CONSTRUCTION ACCOUNTS It is not the purpose of the committee to say what disbursements shall be considered as construction and what as operating expense. The policies of companies differ in this respect. “Construction” or “plant and property” means those things that are of a more or less permanent nature, which are not immediately consumed in the operating processes, and it is a safe rule to follow that wherever there is a doubt as to the character of a disbursement, the doubt should be resolved in favor of the operating expense account. Good accounting is always conservative, and while the committee has very definite views upon this subject, it feels that this report is not the place for their discussion.
In the following classification of construction expenditures, the committee has aimed to follow the lines of the business as now transacted, the broad divisions being generating, transmission, distribution, and so forth, with appropriate subdivisions under each general classification.
In many companies there is kept a parallel system of accounts called "work in progress" or "unfinished plant investment.” This is a very elaborate system of analysis and is designed to secure in advance the executive approval of every item of expenditure, accompanied by preliminary estimates of cost and the determination of the actual cost of each item or job done, to afford a comparison with the original estimate.
In large companies such a system is a prime necessity. The difficulty of construction operations has always been that there is no ready gauge to determine whether the job has or has not been done economically. In operating accounts there is the unit